owner of a small restaurant that sells take-out fried chicken and biscuits pays each month $2,500 in rent,$500 in utilities,$750 interest on his loan,insurance premium of $200,and $250 on advertising on local buses.A bucket of take-out chicken is priced at $9.50.Unit variable costs for the bucket of chicken are $5.50.How many small buckets of chicken does the restaurant need to sell to break-even each month?

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find out the total fixed costs and the contribution margin per bucket of chicken.

Total fixed costs = Rent + Utilities + Interest on loan + Insurance premium + Advertising expenses
Total fixed costs = $2,500 + $500 + $750 + $200 + $250
Total fixed costs = $4,200

Contribution margin per bucket of chicken = Price per bucket of chicken - Unit variable costs
Contribution margin per bucket of chicken = $9.50 - $5.50
Contribution margin per bucket of chicken = $4.00

Break-even point = Total Fixed Costs / Contribution Margin per bucket of chicken
Break-even point = $4,200 / $4.00
Break-even point = 1,050 buckets

Therefore, the restaurant needs to sell 1,050 buckets of chicken each month to break even.

Owner of a Small Restaurant That Sells Take-Out Fried Chicken